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Medicaid Planning: Dotting the"i"s and Crossing the "t"s

By Steven L. Friedman

That well-worn adage may seem trite and arcane, but strict adherence to technical requirements is critical in Medicaid planning.  Since federal and state budget deficits are now the rule, rather than the exception, it is not surprising to see Courts stretch to find technicalities that can be used to deny eligibility for Medicaid benefits.  A prime example occurred this past summer, when the Massachusetts Court of Appeals disqualified a widow for Medicaid benefits because of a technicality in a trust established by her deceased husband more than 25 years earlier.  First, let me provide some definitions.
 

The term 'Testamentary Trust' refers to a Trust established by the terms of a decedent's Last Will and Testament, indicating only that the Trust provisions are described within the pages of the decedent's Last Will and Testament.
 

The term 'Inter-Vivos Trust' refers to a Trust established during lifetime, indicating only that the Trust provisions are described in a separate Trust Agreement, not in the individual's Last Will and Testament.
 

The term 'Medicaid Qualifying Trust' refers to a Trust that disqualifies its beneficiary for Medicaid benefits, since the Trust is presumed to have been established solely for the purpose of qualifying for Medicaid benefits.  Under Massachusetts Law, Inter-Vivos Trusts are presumed to be Medicaid Qualifying Trusts, but Testamentary Trusts are not.
 

In Victor v Mass. Executive Office of Health & Human Services (Mass. Ct. App. No. 09-P-1361, July 21, 2010), Mr. Victor wanted to create a Trust for the benefit of his wife, to take effect upon his death if he predeceased her.  To accomplish that result, he could have created a Testamentary Trust in his Last Will and Testament, or he could have created an Inter-Vivos Trust, with the Trust provisions in a separate Trust Agreement.  In either case, the Trust provisions would have been identical and the Executor of Mr. Victor's Estate would be directed to transfer the balance of Mr. Victor's Estate to the Trustee of the Trust.  The sole difference would have been the piece of paper which Mr. Victor used to describe the Trust provisions.
 

If Mr. Victor had chosen to include the Trust provisions in his Last Will and Testament, creating a Testamentary Trust, the Trust would not be a Medicaid Qualifying Trust and Mrs. Victor would have been eligible for Medicaid benefits.  Unfortunately, when Mr. Victor created the Trust more than 25 years earlier, he chose to use an Inter-Vivos Trust instead, making it a Medicaid Qualifying Trust and, thereby, making Mrs. Victor ineligible for Medicaid benefits.
 

Logic and reason can, sometimes, overcome technical deficiencies, but not when it comes to Medicaid eligibility.  One cannot assume that an individual will receive Medicaid benefits because it seems to make sense, or it seems to be the fair outcome.  Fairness and logic cannot replace technical precision.
 

Mrs. Victor did nothing to warrant being ineligible for Medicaid benefits.  She violated no Medicaid regulations.  She did not even create the Trust - her deceased husband did.  The Trust provisions did not lead to the disqualification.  This case was decided solely on the fact that Mrs. Victor's deceased husband chose to use an Inter-Vivos Trust, instead of a Testamentary Trust, more than 25 years earlier.

Full post as published by New Jersey Law Blog on December 17, 2010 (boomark / email).